Dealing Australia out of a slow growth future

By Regional Australia Institute CEO Jack Archer and Dr Leonie Pearson who leads the Institute’s great small cities research and policy agenda.

The first City Deal in Townsville, announced last week, strikes a new chord for national economic policy.

If City Deals can be done across Australia’s five largest cities and its smaller ones, it will add up to a significant national economic growth strategy.

The Regional Australia Institute (RAI) has been looking at the numbers on Australia’s 31 small cities and talking to small city leaders about their future challenges and opportunities.

This analysis reveals that Australia’s 31 small cities are already home to 4.5 million Aussies in 2013 – more people than were in Melbourne or Sydney.

By 2031 we expect at least 5.6 million people will live in them.

Our small cities are also 88 per cent as productive as our big cities, a performance on par with the USA.

They also grew faster than our big cities between 2002 and 2010.

This growth in our small cities has serious national benefits.

Making deals for a range of City’s can realise significant new growth for the national economy.

The RAI estimates that if 19 low growth small cities achieved treasury growth rates (2.8pc) it would result in a marginal increase of 0.6pc in their average growth rate.

The results show a 76pc in gross value added output until 2031 contributing an additional $11 billion in the national economy.

The Townsville City Deal provides a strong sense of the potential of this approach but there are many more tests to come.

City Deals rely on collaboration between the three tiers of government and the private sector to coordinate investment towards a shared vision for a city.

It’s about working to create local solutions to local issues and trialling new ways of solving workforce, industry and city growth challenges.

For Launceston, Western Sydney and the deals that follow, it’s about demonstrating that this collaboration between governments is more than a one off and that we can deliver a range of strategies that mix investment, reform and new ideas to suit a city and its pathway to growth.

As a highly urbanised nation with a mix of large and small cities that are home to most of the Australian economy, City Deals offer an alternative, complementary way of enabling national growth, alongside the largely constrained fiscal and monetary policy levers.

This first Deal offers an insight into the possibilities.

Townsville is a city with good long-term prospects that is coming off a long boom.

From 2001-2013 Townsville’s economy grew at a strong 4.2pc – last year it experienced a small contraction of 0.6pc and unemployment is at 9.2pc.

In response to challenging conditions, the 15-year Deal is initially focussed on infrastructure construction stimulus – revitalising the city centre with new facilities, expanding the port and improving access to this key economic infrastructure.

This will provide short-term jobs in an economy with local construction expertise, helping to short circuit the local recession.

In the medium term workforce development, tropical services and education, urban renewal, and a defence investment pipeline need to take over from construction and drive long-term growth.

The details and goals for this phase of the Deal are limited but crucial to its ultimate success.

A Launceston City Deal is due to follow shortly.

Launceston is a very different city to Townsville in more than geographical terms.

It has been stuck in a low growth state for a long period. Stimulus spending will be ineffective as a strategy for initiating long term growth.

The Launceston Deal needs to be aiming for structural change to lift some of the constraints that have held Launceston back.

Poor education outcomes and an imperative to move on from reliance on a declining manufacturing sector must be high on the agenda.

The third City Deal is in Western Sydney – a much larger and more complex situation than the regional deals.

Again, big construction projects may not be the best approach with Sydney already in the midst of a construction led boom.

Focus should be on reforms to education and employment strategies, planning reforms in partnership with the State and preparing for new opportunities, which will flow from the new airport and accompanying infrastructure.

If new investment kicks in once the Western Sydney market begins to cool these strategies will prove to be a savvy approach.

The strength of City Deals is that the tools and resources of national and state governments are applied to local issues.

Even a cursory look at our economy shows that we have low and high growth cities, as well as big and small. Some places are well positioned for growth, others have to carve a new path.

A rigid national or State approach can’t work in such a diverse set of circumstances.

One of Malcolm Turnbull’s first moves as Prime Minister was to put cities policy on the national agenda.

Twelve months later, this first City Deal in Townsville has been announced.

For significant national economic growth to be achieved we need to adopt a diversity of approaches and direct our energy and focus to achieving effective City Deals across Australia’s five largest and regional cities.